If you don’t pay your taxes, the IRS has the right to seize your assets. The IRS can take property, homes, cars, boats, and many other assets and then sell them to cover your taxes. Although this is an uncommon levy method used by the IRS, you should still understand how it works if you have delinquent taxes.
The IRS can only take your property after the following steps have taken place:
If you don’t appeal or make arrangements within 30 days, the IRS can legally seize your property. The IRS physically takes your property. Then, the IRS provides you and the public with a notice of sale. Ten days later, the IRS sells the property, usually at auction.
The IRS subtracts the cost of seizing and selling the property. Then, it applies the remaining proceeds to your tax liability. In rare cases where there are leftover funds, you get a refund.
Typically, before selling the asset, the IRS gives you an estimate of the fair market value of the property. You can contest that amount if you don’t agree. However, the process is complicated, and you should seek help from a tax professional.
Although the IRS usually has to provide 30-days notice, there are four exceptions to that rule:
Outside of these exceptions, you should appeal if the IRS seizes your property without giving you proper notice.
The IRS can take wages, funds from your bank account, retirement accounts, stocks, bonds, Social Security benefits, and real property such as cars, homes, boats, and similar items. The IRS can even take rent from your tenants and payments from your clients. Basically, the IRS can take almost everything you own with just a few exceptions.
Yes, the IRS can, but it is not common. The Taxpayer’s Bill of Rights does discourage this collection action, especially for primary residences. Taking someone’s home is generally a last resort for the IRS and is a result of a complete lack of cooperation from the taxpayer. The IRS is required to obtain a court order before seizing property, and one IRS collector cannot make the decision alone. It is much easier for them to garnish wages or seize funds from a bank account. For the IRS to get to the point of considering seizure of a home, the taxpayer likely is jumping through a lot of hoops and hiding assets, lying about income and avoiding the IRS as much as they can.
The IRS cannot seize tools of the trade or livestock. You need those assets to work and pay your taxes. Additionally, you are allotted a minimum amount of income, and the IRS cannot take anything you earn under that threshold.
On top of that, the IRS cannot take any of the following assets:
The IRS can take your primary residence, but that is extremely rare. A US District Court judge must approve the seizure of a home.
If any of the following are true, you need to contact the IRS immediately to stop the seizure:
There are a few other ways to stop a property seizure. To find the best solution, you should contact a tax resolution specialist.
If the IRS sends you a final notice of intent to levy assets, you can stop the levy by making arrangements with the IRS or taking other steps:
To help taxpayers, the IRS has numerous payment options. If you set up a payment plan before the seizure happens, your assets are safe. The IRS offers a variety of installment agreements that you can use based upon your financial situation. Below are types of agreements the IRS offers:
If you don’t have a lot of money or assets, you can stop collection activity by getting declared uncollectible. If you can prove to the IRS that the collection of the taxes at the current time will cause undue financial hardship, then the IRS will stop collection actions. The IRS does have guidelines on what they allow in expenses per month based on where you live, family size and other factors. If you can show to the IRS that you are experiencing financial hardship with providing your current expenses combined with your income and assets, they may declare you uncollectible. Uncollectible status generally is a temporary solution but can help until your financial situation improves.
An offer in compromise is an offer to the IRS to settle the tax amount owed for less. Filing an offer is generally a complex filing process and can help those taxpayers who have a small probability of actually ever paying off the taxes. When an offer is filed, the IRS will stop any collection actions against the taxpayer until the offer is accepted or rejected. If your offer is accepted and you adhere to the requirements, the levy will be released, and your account will be in good standing with the IRS.
Tax professionals understand how the IRS works. They can guide you toward the best solution to protect your assets and take care of your tax liability. They can also communicate with the IRS on your behalf. It is always a good idea to consult with a professional when you cannot qualify for a guaranteed or streamlined installment agreement. A qualified tax professional can work quickly to ensure they file all documents appropriately and meet deadlines to prevent any assets from being seized.
You can apply to get seized property back in select situations. If the IRS has already sold your property, you may be able to get the proceeds back. Typically, you have nine months to request the property back.
If the IRS denies your request to get the property back, you can appeal in the following situations:
In cases of property seizure, you have 180 days to get back the property. You must reimburse the purchaser for the price of the property, plus pay interest at a rate of 20 percent annually.
Finally, if the IRS lost a payment, mistakenly seized property, or made a processing error on a direct debit installment agreement, you can apply for a refund of bank fees. For instance, this rule applies if the IRS seizes funds in your bank account by mistake and you incur insufficient funds or returned check fees. To apply for a refund for bank fees, use Form 8546 (Claim for Reimbursement of Bank Charges). If the IRS rejects your claim, you have the right to sue for damages, which is no easy task.
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